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Created on 17.01.2019

It doesn’t have to hurt: smart saving for pillar 3a

“There’s no point to retirement planning if I don’t even know whether I’ll need the money in future.” This is definitely not the case. By investing in the 3rd pillar early on, you will reap the rewards in the form of tax benefits and a bigger fortune when you’re older (even before you retire). Saving for pillar 3a doesn’t have to hurt either. You just need to know how to do it.

The future is uncertain. Nobody knows how much time they have left. None of us can say for sure when we’re young whether we will even make it to retirement age. This is why it is perhaps hard for a lot of people to even start thinking about things like old-age and surviving dependants insurance (AHV), pension funds, pillar 3a and 3b at this age, not to mention how hard it can be to start saving up this early and not spend money elsewhere.

And yet this “sacrifice” really shouldn’t hurt. You can accumulate a fortune even with very little money. We’re talking sums of money that do not require a huge income, and that everyone can afford. Here’s an example for you: how many coins do you have lying around at home at this very moment? In Germany alone around 15 billion 1 and 2 cent coins are “lost”. We don’t know the figure for Switzerland, but that’s not relevant in this case. What the figure for Germany tells us very clearly is how quickly we could turn these supposedly small sums of money into a substantial amount.

Here’s another example of how you could accrue a considerable sum with small amounts of money you probably don’t even know are there in your day-to-day lives: Put the small coins in your wallet or purse to one side every day. How much would this come to? Nobody would miss a few coins, nor would it hurt, and yet they add up to CHF 50 each month. So, if we were to invest in pillar 3a once a month as soon as we turn 18, we would end up with a pension of CHF 28,200. Not a bad amount when you think this is just loose change.

Would you sooner have wealth than coffee and cigarettes?

Another example from real life: in Switzerland, people drink 3 cups of coffee a day on average. Imagine you invested the price of a cup of coffee every lunchtime into your pension. At four francs a day, you would be saving CHF 120 a month. No problem at all! If you were to start investing these sums of money into your pension at the age of 18, you would have nearly CHF 69,000 of your own by the time you turn 65.

Some people could save even more money if they stopped smoking. Say you smoke thirteen cigarettes on average a day, in Switzerland that’s CHF 165 you could instead be investing in pillar  3a each month in Switzerland. Smokers will say: “That sacrifice will definitely not make me rich.” Hang on, though. If you were to save this amount from when you turn 18 until you reach statutory retirement age, you would have over CHF 94,000, let alone all the other benefits of living you would enjoy.

Which is not that hard at all

Still not “rich” enough based on these examples? Anyone employed who is a member of a pension fund can invest the maximum sum for pillar 3a of CHF 6,826 (from 2019) every year. That would be an especially good idea. If you started investing this sum from the age of 18 until retirement, you would have quite a handsome private pension pot. Any payments you choose to make would by themselves give you assets of at least CHF  318,096, not including interest and compound interest. Combine this with the other payments into your pension (compulsory first pillar and the second pillar with your pension fund) and you will be able to retire financially independent. You might even say that you would have the income of a rich pensioner. Your savings will also include interest and compound interest, which you accrue on your retirement savings account, or a return if you invest your money in a retirement fund. Also remember you can claim your retirement funds in your tax return, and so reduce your tax burden each year.

However, it does not always have to be the maximum sum, and a young person is not expected to pay this year in year out from the age of 18. After all, you need to actually earn money before you can build up your retirement pot in the long term. This is why we are going to go over just once more what it means to save up small sums for retirement early on, regularly and over the course of several years. The following example is admittedly not about wealth, but investing over CHF 100,000 of your own accord in your private pension could well pay off, and it is a realistic goal. And so, if you start investing CHF 200  each month into your pillar 3a account at the age of 20, you will retire with a “fortune” of CHF 108,000,

Four tips to help you accumulate some wealth

In any case, you’ll probably only become rich overnight with a lottery win, not pillar 3. Still, the sooner you start saving and planning for your future, the more assets you will accrue, even if you invest small sums. To make the first step towards saving for your retirement easier, here are our four easy tips:

Motivate yourself

Calculate what unnecessary expenses you may be able to avoid in future. Things that don’t cost a fortune but that could still be invested in your private pension with a bit of smart thinking.

Take time into account

“Sooner rather than later” will be your new motto. Even with just a little money, you will be able to accumulate some wealth in the long run.

Stick to your target

Tell yourself that regular investments will not become a problem in your daily life. This way, the odd sacrifice here and there will be easier. As a PostFinance customer, you can still open a retirement savings account 3a today from the comfort of your own home. A standing order will also ensure you never miss an inpayment, which will help you reach your retirement target.

Save on taxes

Tax-deductible sums are key here. You can claim any contributions to the 3rd pillar in your tax return. You can calculate your potential tax savings with pillar 3a here: What’s the secret?

As you can see, you can accumulate considerable assets for your future with just a little money for no trouble at all, and none of this requires you to make any major sacrifices.

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